Talking about re-financing deals with a friend who's got a mortgage and she's told that interest are being paid first before principal. Thus, if you refinance, the cycle begins again…so you're paying more interest in the long run.
I looked at borrowing charts for P&I interest and this seems true.
So, what's considered a good mortgage switch if you're being penalised sort of with your new loan?
I agreed with badhorse.you could ask the bank to reduce the term
I refinanced my mortgage when I switch to anz with 28 years rather than 30 years. Because remaining year of my loan is 28 years with my previous bank, I asked them to keep it the term same
A higher portion of you payment is towards the interest at the start , but I don’t get your question
Refinancing wouldn’t make your interest portion go up, as your balances are still the same. Assuming you interest rate goes down due to the refinancing your better off.
May have misinterpreted your question
Yes, you pay the most interest at the beginning of the loan only because that's when you owe the bank the most money.
As your loan term goes on, your loan reduces which means you pay less interest (because you owe less). That's all there is to it.
When refinancing, it's a good idea to keep your remaining loan term and not taking out a new 30 year loan if possible.
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Its not that it restarts, its % based, so they calculate your repayments based on a curve over the life of your loan, where you pay 33% of the interest in the first 25% of the loan. So whenever you refinanace, that happens again and again.
Same thing happens every time you sell and rebuy a new place. So if you buy and resell every 5 years x 5, you are paying about 1.5 times the interest you would of paid if you stayed on the same loan for 25 years with minimum repayments.
Does the mortgage repayments calculator reflect this?
So when refinancing, better to get a shorter term than what's remaining? Say, 30 yr loan originally, you have 25 years left but when you refinance you have a 22 year term?
The loan term should stay the same when refinancing therefore you finish paying your loan under the same loan period.
If you can afford the repayment of course the lesser the loan term the better for OO.
I think reading comprehension is not your strongest skill
You can negotiate shorter term, but monthly payment will be higher
I looked at borrowing charts for P&I interest and this seems true.
No.
Say you borrowed $102. You have $100 left and interest rates are 3%. Interest is $3 for the year.
Say you decide to refinance at 2.9%. Interest is now $2.90 for the year. If it was 3% you'd pay $3 interest - the same as not refinancing (obviously you'd only refinance if the new interest rate was lower).
Discipline is the key here.
Let's say your repayment was $2000
You get a new loan, the bank gives you $3000 for switching, happy days (keep the switching bonus in the offset)
You get a letter saying your repayment is now $1800
You can either pay 1800 (minimum) if you plan on renting the property out later and want to maximise interest.
If you want to pay down your debt for a PPOR, just keep up your previous payment of $2000
But here’s the thing, the other was shopping around…the interest is lower BUT for some reason, the monthly repayment of the refinance is HIGHER than what’s being paid with the current mortgage, even with the lower interest rate. Strange!
For the same starting balance and the lower interest rate, the only things that can increase the monthly repayments are:
1. Reduced Loan Term
2. High Fee (being capitalized on the loan)
If you want to pay down your debt for a PPOR, just keep up your previous payment of $2000
Not unless the new loan is a variable rate loan.
Fix rate loans do not allow higher than minimum repayments. Or say, they do it for a fee.
For variable rate loans, if you pay higher than the minimum repayment amount, the extra money goes into redraw. It helps in reducing the interest on the loan. The borrowers need to be conscious if it is an investment loan as it brings in the conditions related to tax benefits.
Don't most/all allow 10k in additional payments a year without penalty? So leaving the repayments $200 higher per month won't get close to the limit.
Yep, check with your PDS always. I did this with Suncorp fixed loan and they allowed up to $500/month extra repayments without penalties and I made the most of it.
Who said you are being penalised?
It is a NEW loan?
You could discuss having a shorter term instead of the default 30 year loan?